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Wednesday, December 03, 2014

Upside down Europe

With politics heating up in the frigid Swedish winter we can’t help but get the sense that Europe is turning itself on its head a bit…

North becoming South?

We warned yesterday that the Swedish government was on the brink of collapse. So it has proved. The Swedish Prime Minister Stefan Löfven today announced snap elections for the 22 March 2015 after the Swedish Parliament refused to back the government’s budget and instead voted for the opposition’s budget. This was largely down to the Sweden Democrats who are playing king-makers in the current parliament. Such political turmoil is alien to the usually placid Swedish political scene and rings more of happenings in struggling Eurozone countries unable to agree on an austerity budget in the midst of a severe economic crisis.

Similarly, at the start of the year, the Danish coalition government was weakened by the departure of the Socialist People’s Party (SF) – which was not happy about the sale of part of state energy firm Dong to Goldman Sachs. However, the party said it would continue to support the government from the opposition benches. The move forced Prime Minister Helle Thorning-Schmidt into the seventh cabinet reshuffle since she took office in October 2011. The next general election is due in September 2015, and we wouldn’t be surprised to see the Danish People’s Party become the effective powerbroker – similar to the SD in Sweden – especially after they became the largest party at the European elections earlier this year.

We have also noted numerous times (see here and here) that the Finnish economy is struggling and posting some of the worst growth figures in the EU. While it is stabilising now it is finding it hard to source new drivers of economic growth following the decline of Nokia, the tech sector more broadly and the paper industry. The long term economic malaise is surprising in a country which continuously ranks high in measures of competitiveness (4th globally according to the World Economic Forum) and ease of doing business (9th globally according to the World Bank).

South becoming North?

In the third quarter of this year two of the strongest growing economies in the Eurozone were Spain and Greece. While countries such as Germany, the Netherlands and Belgium barely pulling themselves into positive growth territory the two periphery stalwarts posted some strong figures.

Throughout this year we’ve also seen numerous periphery countries getting close to record low borrowing costs, including Ireland, Italy, Spain and Portugal.

Discussion over the US-EU free trade deal TTIP have exposed some unusual fault lines. With countries such as Portugal and Italy pushing strongly for the deal to be struck and talking in very free trade terms, Germany and France have been raising concerns and taking a more protectionist stance.

Although thinking about it, we still have a looming economic and political crisis in Greece, economic malaise in Portugal and Italy and the rise of numerous populist parties. Maybe rather than the North and the South switching, the whole of Europe is just becoming more Southern…

The problem for the Swedish etablished parties stems from the fact that neither the centre-left nor the center-right wants to let the anti-immigration Sweden Democrats have any role at all in Swedish politics. But since SD is king-maker, the logic then is that some of the established parties joined together in a majority-based government. They did not want to do that. Then what happened was that the Sweden Democrats after all got the deciding role, which no other party wanted to give them. What a surprise! Fred